A complete guide to depreciation of IT assets: What it is and how to do it

IT budgets are tighter, refresh cycles are slipping, and devices are losing value faster than ever. A laptop purchased for $1,200 today could be worth half its value in just two years. Without a clear plan for depreciating IT assets, costs accumulate, forecasts fail, and replacement planning stalls.

Let’s dive into IT asset depreciation, why it’s important, and how to calculate it using reliable methods and formulas for IT leaders. Let's also learn practical ways to align depreciation with lifecycle planning, optimize budgets, and maintain accurate asset data, all while avoiding costly surprises.

What is the depreciation of IT assets?

Depreciation of IT assets is the process of allocating an asset’s cost over its useful life to reflect the loss of value and maintain accurate financial reporting. This applies to IT equipment, including laptops, servers, and networking devices. Understanding IT asset depreciation is essential before exploring methods and calculations.

For instance, if a laptop costs $1,500 and has a resale value of $300 over three years, the annual depreciation would be $400. This approach simplifies budgeting and tracking.

Why depreciation plays a key role in IT asset management

Accurate IT asset depreciation is more than a compliance requirement. It’s the foundation of smarter IT asset management. By tracking how IT equipment loses value over time, IT and finance teams can plan budgets, forecast costs, and make better replacement decisions.

Why it matters

• Accurate reporting: Keeps book values up to date and simplifies audits.

• Budget planning: Helps balance CapEx vs. OpEx effectively.

• Tax compliance: Ensures deductions align with frameworks like MACRS.

• Refresh cycles: Identifies when aging devices should be replaced.

  What can go wrong: If a company neglects depreciation on IT equipment, it can cause refresh cycles to stall. Aging servers may fail unexpectedly, leading to costly downtime, emergency purchases, and budget overruns.

Freshservice’s IT infrastructure discovery features provide complete, real-time visibility into asset costs, book values, and EOL timelines. IT leaders gain a unified view of every asset, enabling them to plan replacements proactively and avoid costly surprises.

Key factors in calculating IT asset depreciation

Understanding the key factors that influence IT asset depreciation enables IT and finance teams to make accurate forecasts, manage budgets effectively, and strategically plan refresh cycles.

Here’s what matters most

• Asset cost: Include the total purchase cost and expenses such as installation, configuration, and setup, while also factoring in IT cost reduction strategies to manage budgets more effectively.

• Useful life: An asset’s useful life refers to the duration during which it remains valuable and functional for your organization. Vendors provide estimates, but internal refresh policies, warranty periods, and performance expectations should also guide your calculations.

• Salvage value: This refers to the estimated resale or recovery value of an asset at the end of its useful life. Lower salvage values result in higher annual depreciation for IT equipment, such as laptops and servers.

• Depreciation method: The method you choose determines how the asset’s cost is allocated across its useful life. Straight-line depreciation is commonly used for predictable-use assets, while accelerated methods are more suitable for equipment such as GPUs and high-end servers that depreciate more rapidly.

Freshservice’s Freddy AI Copilot uses predictive insights to help IT leaders estimate the useful life of assets, identify high-cost assets early, and plan refresh cycles more accurately. It enables smarter, data-backed decisions when managing depreciation on IT equipment.

Common depreciation methods for IT equipment

Selecting the correct method for calculating IT asset depreciation depends on the type of asset, its depreciation rate, and your organization’s financial objectives. Here are the five most common approaches used for the depreciation of IT assets:

1. Straight-line depreciation (SL)

• Best suited for: Laptops, desktops, and other assets with predictable value loss.

• How it works: Spreads the asset’s cost evenly across its useful life.

Formula: Depreciation = Cost − Salvage value​/Useful life

Example: A laptop costs $1,200, with a salvage value of $200 and a useful life of 3 years. Annual depreciation = 1,200−200 / 3 = $333.33 per year

2. Declining balance (DB)

• Best suited for: Assets that lose value more rapidly in the initial years.

• How it works: Applies a fixed depreciation percentage each year based on the asset’s current book value.

Formula: Depreciation = Rate × Book value at beginning of year

Example: A router worth $2,000 with a 30% annual rate depreciates: $2,000 × 30% = $600 in the first year

3. Double declining balance (DDB)

• Best suited for: High-performance hardware such as GPUs or servers that become obsolete quickly.

• How it works: Accelerates depreciation by doubling the straight-line rate for faster cost recovery.

Formula: Depreciation = 2 × 1 / Useful life × Book value at beginning of year

Example: A server costs $5,000 with a 5-year life. Year 1 depreciation:

2 × 1 / 5 × 5,000 = $2,000

After year 1, depreciation is calculated on the remaining book value.

4. Units of production (UoP)

• Best suited for: Assets whose value depends on usage, such as kiosks or printers.

• How it works: Calculates depreciation on IT equipment based on actual usage rather than time.

Formula: Depreciation = Cost − Salvage value / Total expected units × Units used

Example: A printer costs $3,000 and is expected to produce 300,000 pages. If it prints 100,000 pages in year 1: 3,000 − 0 / 300,000 × 100,000 = $1,000

5. Sum-of-the-years’ digits (SYD)

• Best suited for: Short-lived IT equipment where early performance is most critical.

• How it works: Front-loads depreciation by weighting earlier years more heavily.

Formula: Depreciation = Remaining life / SYD total × (Cost − Salvage value)

Where SYD total = n (n+1) / 2 (n = useful life)

Example: A tablet costs $900 with a 3-year life: SYD total = 3 (3+1) / 2 = 6

Year 1 depreciation = 3 / 6) × 900 = $450

💡Quick tip: If you're unsure what asset depreciation means or which method to use, take into account your organization's refresh cycle and the rate at which technology becomes obsolete.

Depreciation calculation: Step-by-step approach

Calculating the depreciation of IT assets requires more than plugging numbers into a formula. Different asset classes, lifespans, and methods can impact the outcome, and strong IT management practices help ensure budgets and forecasts stay accurate.

Here’s a step-by-step framework to help IT and finance teams get it right:

Step 1: Identify the IT asset class

Start by categorizing your IT equipment, including storage devices, networking gear, mobile devices, and specialized hardware. Grouping assets correctly ensures that your IT asset depreciation accurately reflects the realistic value loss.

Example: A dedicated firewall appliance depreciates differently than a high-capacity storage array, as their performance lifecycles vary.

Step 2: Estimate the useful life

Check vendor estimates, but validate them against industry norms and your organization’s refresh policies. Some teams replace devices sooner than OEM timelines for security or compliance reasons.

Example: A virtualization appliance may have a vendor-rated lifespan of five years, but if your security policies mandate three-year refresh cycles, calculate based on a three-year lifespan instead.

Step 3: Choose the right depreciation method

The correct method depends on how quickly the asset loses value:

• Use straight-line for predictable-use assets (e.g., enterprise monitors).

• Use double declining balance for assets with rapid obsolescence (e.g., high-performance GPUs).

• Use units of production when usage drives value (e.g., kiosk displays).

• Selecting the wrong method can inflate book value or distort financial reporting.

Step 4: Apply the formula

Calculate depreciation once you know the asset class, useful life, and method. Always base it on total capitalized cost (purchase price + setup costs).

Example (straight-line): A wireless controller costs $8,000, salvage value $800, useful life 4 years: 8,000−800 / 4 = $1,800 per year

Example (Double declining balance): Same wireless controller, year 1 depreciation:

2 × 14 × 8,000 = $4,000

Step 5: Build a depreciation schedule

Create a schedule mapping start value, annual depreciation, and book value. This helps IT and finance teams track costs, predict refresh cycles, and manage audits seamlessly.

Get a prefilled Google Sheet with formulas for:

• Straight-line depreciation

• Double declining balance

• Sum-of-the-years’ digits

The calculator automatically applies formulas when you enter cost, salvage value, and the useful life. It is ideal for depreciation on IT equipment across multiple asset classes.

How to choose the right depreciation method

Select a method that matches how the asset loses value, how you report it, and your tax goals. Start with the asset itself, then check its useful life, usage pattern, compliance (GAAP/MACRS), and reporting needs. Enterprise asset management can help align IT asset depreciation with overall budgeting and refresh plans in larger setups.

Key factors to weigh

• Asset type and usage: Predictable devices (such as monitors) behave differently from fast-aging gear (like smartphones and GPUs) or usage-driven assets (like printers and kiosks).

• Useful life: Shorter lifecycles benefit from accelerated methods; longer, stable lifecycles fit an even spread.

• Reporting needs: If you need a smooth expense profile for forecasting, stay even; if you need front-loaded expense recognition, accelerate.

• Tax considerations (U.S.): MACRS often favors accelerated write-offs; keep a clear book vs tax view.

• Controls and audit: Whatever you pick, apply it consistently within an asset class and document the policy.

Here’s a quick comparison to help you decide which approach works best for different IT assets:

How to apply this in practice

1. Classify the asset and confirm the useful life you’ll use for depreciation of IT equipment (policy + industry norms).

2. Select the method that mirrors real value loss and meets tax/reporting goals.

3. Document the choice in your ITAM policy; use it consistently for that class.

4. Review usage patterns annually to determine if support changes can justify a switch to new purchases.

Why this matters: Accurate depreciation depends on having clean, consistent asset data — from purchase costs to book values and EOL timelines. Applying the correct method across asset classes becomes difficult without a single source of truth.

Managing depreciation in the IT asset lifecycle

Depreciation isn’t just a financial exercise; it drives smarter decisions across IT asset lifecycle management. From purchase to disposal, tracking the depreciation of IT assets helps IT and finance teams plan budgets, align refresh cycles, and maximize ROI.

Understanding how depreciation interacts with each lifecycle stage helps you decide when to replace, upgrade, or retire IT equipment.

1. Purchase → in-use → review → disposal

Every IT asset passes through these stages. The depreciation of IT assets provides IT leaders with the financial context to plan timely upgrades and avoid overspending on outdated technology.

2. Depreciation triggers refresh workflows

Depreciation schedules can automatically trigger refresh workflows when an asset nears the end of its life (EOL) or its book value falls below a specified threshold. This ensures timely replacements, fewer disruptions, and better budget control.

3. Aligning refresh cycles with warranties and EOL

Mapping depreciation on IT equipment to warranty periods enables IT teams to utilize assets effectively, minimize support costs, and plan for replacements before failures occur.

4. Enabling ROI analysis and audits

Accurate depreciation insights simplify audits, strengthen license compliance, and facilitate more informed ROI analysis. With clear cost visibility, IT and finance teams can use IT contract management to negotiate more favorable vendor terms and optimize budgets.

How Freshservice simplifies it

Freshservice’s inventory management helps IT leaders manage the entire asset lifecycle more effectively by automating depreciation tracking, refresh workflows, and EOL planning in one platform. This unified approach ensures assets are fully utilized while preventing costly surprises.

Freshservice also integrates with Device42 to deliver deeper visibility and control for organizations managing complex infrastructure, helping teams track, audit, and secure assets, stay compliant, and optimize procurement decisions.

Common pitfalls and best practices in IT depreciation

Mistakes in estimating asset life, ignoring salvage value, or applying the wrong method can distort financial reporting and refresh planning. Following IT asset management best practices helps IT and finance teams manage IT asset depreciation more accurately and make better budgeting decisions.

Here’s a quick overview of common depreciation pitfalls and how to address them to ensure accurate reporting and stay on track with refresh planning:

Regulatory standards and reporting

U.S. organizations follow GAAP for financial reporting and MACRS for tax reporting, while international businesses often adhere to IFRS/IAS 16. Understanding these frameworks ensures accurate reporting, optimized tax deductions, and reduces the likelihood of audit surprises.

GAAP vs. MACRS: Book vs. Tax reporting

• Generally Accepted Accounting Principles (GAAP): Used for book reporting. Focuses on accuracy and comparability for stakeholders, utilizing methods such as straight-line or double-declining balance.

• Modified Accelerated Cost Recovery System (MACRS): Used for tax reporting in the U.S., it prefers accelerated methods, such as front-loading depreciation, to maximize early-year deductions.

Section 179 and bonus depreciation

For U.S. businesses, Section 179 and bonus depreciation provide additional ways to deduct IT asset depreciation faster:

• Section 179: Allows businesses to expense the full cost of qualifying IT equipment in the year of purchase, up to IRS-set limits.

• Bonus depreciation: Lets you deduct a large percentage of eligible asset costs in the first year. It is beneficial for high-value hardware purchases such as servers or GPUs.

IFRS/IAS 16 (global context)

Outside the U.S., many companies follow IFRS/IAS 16, which focuses on reflecting an asset’s real economic value over time. Unlike MACRS, it doesn’t allow accelerated deductions purely for tax benefits.

Here’s a quick comparison of how book reporting (GAAP) and tax reporting (MACRS) differ:

Real-world examples and depreciation scenarios

Understanding IT asset depreciation becomes clearer when you see how companies manage it. Here are three examples that illustrate different approaches to depreciating IT equipment and strategic planning.

1. Microsoft (Data center servers, accelerated depreciation)

Microsoft plans to invest $50 billion in AI/data center infrastructure with an expected five-year useful life. This level of capital expenditure is likely to increase annual depreciation expenses by approximately $10 billion, which will have a significant impact on profit margins.

2. CoreWeave (Accelerated depreciation for AI GPUs)

CoreWeave, a cloud infrastructure provider, applies a rapid depreciation model to its high-performance AI GPUs, resulting in an average annual depreciation of 20%–30%. At the same time, it delivers up to 20% higher GPU cluster performance compared to alternative solutions.

Case study: Probe CX × Freshservice

• Challenge: Probe CX needed better control over IT asset management to track costs and manage hardware lifecycles efficiently.

• Solution: Using Freshservice, the company gained complete visibility into its assets, automated depreciation tracking, and streamlined lifecycle planning.

• Impact: Streamlined asset audits, improved budget accuracy, and significantly cut down on manual workloads.

From depreciation to optimization: Managing IT assets with Freshservice

Tracking the depreciation of IT assets is only part of the picture. IT leaders require a platform that integrates financial insights with lifecycle planning to optimize value and manage costs effectively.

Freshservice simplifies this by:

• Centralizing visibility: Track purchase cost, book value, and end-of-life dates in one dashboard.

• Automating depreciation tracking: Update asset values in real time and trigger refresh workflows.

• Enabling smarter planning: Use Freddy AI for proactive replacement recommendations and budget forecasting.

By transforming IT asset depreciation data into actionable insights, Freshservice helps IT teams optimize costs, extend asset value, and plan upgrades with confidence. Start your free trial today and discover how effortless managing IT assets can be.